Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Thursday, January 10, 2013

TAXPAYER ADVOCATE DELIVERS ANNUAL REPORT TO CONGRESS

National
Taxpayer Advocate Nina E. Olson has released her 2012 annual report to
the idiots in Congress.

Here
is some of what Nina discussed, from the IRS press release (highlights are
mine) - identifying the need for tax reform as the overriding priority in tax
administration.

“The National Taxpayer Advocate’s annual
report designates the complexity of the
tax code as the #1 most serious problem facing taxpayers and recommends
that Congress take significant steps to simplify it. ‘The existing tax code
makes compliance difficult, requiring taxpayers to devote excessive time to
preparing and filing their returns,’ Olson wrote. ‘It obscures comprehension, leaving many taxpayers unaware how their
taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to
reduce their tax liabilities and provides
criminals with opportunities to commit tax fraud; and it undermines trust
in the system by creating an impression that many taxpayers are not compliant,
thereby reducing the incentives that honest taxpayers feel to comply.’

The report states that the tax code
imposes a ‘significant, even unconscionable, burden on taxpayers.’ Since 2001, Congress has made nearly 5,000
changes to the tax code, an average of more than one a day, and the number of
words in the code appears to have reached nearly four million.

To reduce taxpayer burden and
enhance public confidence in the integrity of the tax system, the report urges Congress to greatly simplify the tax
code. In general, this means Congress should reassess the need for existing
income exclusions, exemptions, deductions and credits (generally known as tax
expenditures). For fiscal year (FY) 2013, the Joint Committee on Taxation has
projected that tax expenditures will come to about $1.09 trillion, while
individual income tax revenue is projected to be about $1.36 trillion. To put
these numbers in perspective, if Congress were to eliminate all tax
expenditures, straight math indicates it could cut individual income tax rates
by 44 percent and still generate the same amount of revenue it collects under
current rules.

The report recommends that Congress
approach tax reform in a manner similar to zero-based budgeting. The starting assumption would be that all tax
expenditures would be eliminated. A tax break would be retained only if a
compelling case can be made that the benefits of that break outweigh the
complexity burden it creates. ‘In performing this analysis,’ Olson said in
releasing the report, ‘we should look at
each provision in the code and ask questions like: Does this government incentive
make sense?; If it does, is it better administered through the tax code or as a
direct spending program?; However well intentioned, is it doing what it was
intended to do?; and If yes, can it beadministered
without imposing unreasonable burdens on taxpayers or the IRS?. At the same
time, Congress can separately consider how much revenue it wants to raise, and
it can then marry up our optimally designed tax system with our revenue needs
by setting tax rates accordingly.’”

Nina's report
also expressed concern that the IRS is not adequately funded and that the IRS
is not doing enough to assist victims of tax-related identity theft and return
preparer fraud.

This
is not the first time that Nina has cited the complexity of the Tax Code as a
serious problem.She hits the nail on
the head this year by putting it on the top of her list.

Her
starting assumption for tax reform is what I have been saying for the past few
years now, and her questions to be asked before adding a tax expenditure to the
Code are spot on – especially “is it
better administered through the tax code or as a direct spending program?”.Also as I have been saying for years, when
applied to a majority of the current tax expenditures the answer would be a
definite “it is better administered as a direct spending program”!

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